Could you please provide guidance on the Solvency II treatment of the following scenario: An insurance or reinsurance company, possibly a captive, provides a loan to a non-regulated entity within the same group. The loan has a limited term, and its interest rate is determined not only by the duration and credit quality of the borrower but also includes a feature that provides coverage for a defined insurance risk up to a certain limit during the loan term. This is called an Insurance Linked Loan (ILL).The loan's remuneration is variable and consists of three components: 1.The traditional interest components, based on credit quality and duration, 2. A "premium" for the insurance risk transferred; and 3. the "claims experience" of that risk during the different years of the term of that loan. To make it practical, the first two components of the remuneration are paid in advance, whilst the claims component is taken into account at the end of each period. The risk covered by the loan can pertain to any line of business described under the Solvency II framework, with the total coverage limited to the principal loan amount. From a risk-transfer perspective, this structure is the reverse of an Insurance-Linked Security (ILS), which typically transfers risk to the capital markets. In the case of an ILS, when certain conditions such as real risk transfer, credit quality, and liquidity are met, the issuing company receives relief in the relevant Underwriting Risk Module under Solvency II. Given the similarity between ILS and this Insurance Linked Loan (ILL), and in line with the Solvency II principle of "Economic Effect over Form," would it be advisable to split this loan into its two economic components: the financial loan (treated under the Market Risk Module) and the insurance cover (treated under the Relevant Underwriting Risk Module)? Your guidance on this matter would be highly appreciated.